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These Under-The-Radar Warren Buffett Stocks Could Soar if S&P 500 Continues Higher

Published 03/18/2024, 08:39 AM
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  • This year, the S&P 500 has seen a remarkable streak of 17 new all-time highs, outpacing many previous years.

  • Notably, Warren Buffett's Berkshire Hathaway has stakes in two lesser-known homebuilders that you can consider for your portfolios too.

  • Meanwhile, as summer approaches, historical data suggests a possible slowdown in market performance, reflecting the age-old adage of "sell in May and go away."

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  • In the past year, the S&P 500 hasn't dropped by more than 2% in a single day for 266 business days. This is rare as it has happened only 15 times in the last 74 years.

    Interestingly, in 14 out of those 15 instances, the index was higher one year later. So, this trend works in the bulls' favor.

    S&P 500 Price Chart

    In 2024 alone, the S&P 500 has already reached 17 new all-time highs. Looking back over the past 95 years, only 30 years have seen more all-time highs than 2024, with more than half of the year remaining.

    Here are the years with the highest number of all-time highs:

    • 1995: 77
    • 2021: 70
    • 1964: 65
    • 2017: 62

    There have been 51 years without reaching a new high.

    By the way, this Monday, two companies enter the S&P 500: Super Micro Computer (NASDAQ:SMCI) and Deckers Outdoor (NYSE:DECK).

    Meanwhile, Warren Buffett's Berkshire Hathaway (NYSE:BRKa) holds shares in two companies within the Invesco S&P 500® Momentum ETF (NYSE:SPMO).

    The Invesco S&P 500 Momentum ETF has surged more than +21% this year, outpacing the S&P 500's +8.6% return.

    Warren Buffett's companies are both homebuilders.

    1. NVR (NYSE:NVR): The homebuilder has a minor ownership interest, which Berkshire Hathaway first disclosed in June 2023. NVR's shares have climbed +8% this year and nearly +41% over the past 12 months. Berkshire Hathaway's stake in NVR is less than 1% of the total outstanding shares.
    2. Lennar Corporation (NYSE:LEN): Another homebuilder based in Miami, Lennar is also a modest holding for Buffett, with only 152,572 shares. This represents less than 1% of outstanding shares. Buffett owns Class B shares in Lennar, which surged +65% last year and more than +2.5% this year.

    Markets Set for a Slow Summer?

    Professors Cherry Zhang and Ben Jacobsen conducted a thorough analysis of historical stock market data spanning back centuries, examining 114 markets, starting from the UK market in 1693.

    Their findings paint a clear picture: On average, stock market performance during winter months surpasses that of summer months. Specifically, they observed a 4% higher average return from November to April compared to May to October.

    This phenomenon is commonly known as the "sell in May and go away" pattern, originating in England, suggesting investors sell in May and stay out of the market until Leger Day in September.

    For instance, Eagle Bay Capital demonstrated that investing $10,000 in the Dow Jones from November 1, 1950, to April 30, 2013, would yield $776,000, while the same investment from May 1 to October would result in a loss of -$688.

    Examining the Nasdaq over the last 50 years, the November to April period emerges as the best six-month stretch.

    However, the fear of the May-October period may vary depending on the timeframe analyzed.

    In the last 12 years, the S&P 500 was positive in 10 out of 12 years, indicating that performance can differ over shorter periods compared to longer-term averages.

    Japan Set to Raise Rates?

    The Bank of Japan introduced negative interest rates in 2016 to spur inflation, and the Bank of Switzerland followed suit. However, currently, only the Bank of Japan maintains negative interest rates.

    This situation might change soon. The BoJ is meeting on Tuesday and may raise interest rates for the first time in 17 years. The market strongly believes that if the BoJ doesn't act at this meeting, it will likely do so in April or June.

    The market predicts a 66% chance of a rate hike this Tuesday. If not in April, the probability increases to 80%, and if still delayed, June is seen as almost certain, with a 98% likelihood of a rate hike.

    USD/JPY Price Chart

    The chart shows that for the moment USD/JPY has not been able to break its resistance and the market was already discounting interest rate hikes, hence the yen strengthens and USD/JPY falls.

    Nikkei Price Chart

    Despite minimal discussion, the Japanese stock market has made significant strides in the past decade. The Nikkei 225 has surged by 217% in yen, trailing slightly behind the S&P 500, which has seen a 237% increase.

    This year, the Nikkei has finally reached record highs. Furthermore, Japanese company earnings are anticipated to triple compared to when the index previously peaked in 1989.

    Ranking of the Stock Exchanges in 2024

    Here's how the major stock markets are ranking so far this year:

    Investor sentiment (AAII)

    Bullish sentiment, i.e. expectations that stock prices will rise over the next six months, remains at 45.9%, above its historical average of 37.5%.

    Bearish sentiment, i.e., expectations that stock prices will fall over the next six months, is at 21.9% and remains below its historical average of 31%.

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    Disclaimer: The author does not own any of these shares. This content, which is prepared for purely educational purposes, cannot be considered as investment advice.

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